Legislation Aims to Get Retirement Savings Started
Early

Senator Jeff Sessions (R-Alabama) plans to introduce
new legislation that would establish savings accounts at
birth for every American – and he’d fund them with a
$1,000 contribution from the federal government, beginning
in 2008.
The so-called PLUS Accounts (for Portable, Lifelong
Universal Savings Accounts) would be invested in a limited
number of funds – Sessions sees the federal
government’s Thrift Savings Plan (TSP) as the model.

Parents of children would pick the funds, and parents
and grandparents also would be allowed to contribute up to
$5,000 annually to these accounts.
However, Sessions claims that even without any
additional contributions, and given a reasonable rate of
return, the initial $1,000 endowment would be worth $50,000
to $100,000 when each individual reached age 65.

Employer Match

However, beginning in 2009, his legislation would
also call for 1% of every worker’s paycheck to be
automatically deposited into his own account for the first
$100,000 earned annually, with employers required to match
this 1% contribution. Worker contributions would be made
pretax while employer contributions would be tax-deductible
– and both workers and their employers would have the
option of contributing above the 1% level, up to 10%,
applied against pay up to $100,000.

Funds contributed to PLUS accounts would be the legal
property of each account holder - and, as the name
suggests, they would be portable, not tied to any
individual employer - but they could not be touched until
age 65.
Any funds remaining at death could be passed on to a
spouse, children, grandchildren or anyone of the
holder's choosing (including a favorite charity).
Account assets would be protected from creditors and would
not be considered in determining eligibility for any
federally funded benefits or in calculating estate tax
liability.
Oh - and this program would exist outside the Social
Security system, not altering the program in any way.

How Much?

In an
Op-Ed piece
in the Washington Post, Session says that if PLUS
accounts are initiated at birth and require a portion of
every paycheck to be invested, the average American citizen
could retire with nearly $300,000 (he assumes a 6.59% rate
of return - the same rate as the TSP's most
conservative fund since 1987, for someone that makes
$46,000/year - the median household income in 2005, and the
1% contribution level).

In the Op-Ed piece, Sessions says, "Our
nation's saving rate is a big problem. It requires a
big solution. We cannot tinker with the federal tax code
and expect personal savings to increase
dramatically."

Sessions estimates that the annual $1,000 start-up
contributions would cost the government $4 billion a
year, plus administrative costs for a new board to
oversee the Plus Account investments and manage the
program.